PORTERS FIVE FORCES ANALYSIS FOR

THE TELECOM INDUSTRY IN INDIA

Prepared By
Akash Agamya
Great Lakes Institute of
Management

Introduction
India has a total of 960.9 Million telecom subscribers, comprising of 929.37 mobile
subscribers & 31.53 wire-line subscribers.
The Indian teledensity now stands at 79.28%.

Rank in world in network size 3rd
Teledensity (per hundred populations) 79.28
Telephone connections (In Million)
Fixed 929.37
Mobile 31.53
Total 960.9
Introduction
28%
23%
17%
14%
10%
6%
1%
1%
0%
Group Company Wise % Market
Share (Subscribers) as of July 2012
Airtel
Vodafone
IDEA
BSNL
Aircel
Uninor
Videocon
MTNL
Loop
0.80% 0.78%
0.39%
0.000%
0.43%
-2.37%
-7.50%
-1.69%
-4.92%
0
0
0
0
0
0
0
0
0
0
0

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Operator Wise % Growth as of July
2012
Introduction
With the connections now growing at a faster pace in rural areas as compared to
urban the rural teledensity will grow from the current value of 40% to 50%.

Porters Five Forces
Competitors Analysis - High

Concentration Market Share and Structure
Financial Analysis Past, Present, Future
Global Presence and Marketing Network
Future Prospects
Overall Analysis

Competitors Analysis
Concentration Market Share
More than 15 players in the market.
Airtel, Vodafone, Idea and RCOM itself captures more than 75%


Competitors Analysis
Market Structure (2012)
Average revenue per user for big players is around Rs. 110 Rs. 120
Reliance has lesser ARPU because major of its subscribers are low end
customers

Revenue Market
share
Consumer Market
share
ARPU
AIRTEL 29.1% 19.8% 114.2
Reliance 8.2 % 16.7% 45.2
IDEA 15% 12.3% 114.9
Market leader AIRTEL
Market Challenger Reliance, Vodafone, BSNL
Maket Follower TATA, IDEA
Competitors Analysis
Telecom operator Revenue Growth Analysis
AIRTEL Increased mobility revenue(9% CAGR) due to increasing
traffic(7.9% CAGR) at stable ARPM; Bhartis revenue will also be
helped by African revenues expected to grow at 30.9% CAGR
RCOM RCOM, which has been struggling with the KPIs and subscriber
quality, is expected to grow at
4.5% CAGR over FY11 to FY14E driven by a 5.9% CAGR in traffic
to 445.4 billion minutes and a stable ARPM of ~ 45 paisa.
IDEA Increased mobility revenue(18.5% CAGR) due to increasing
traffic(17.7% CAGR) at stable ARPM

Concentration Market Share and Structure
Competitors Analysis
OPERATOR EBITDA margin analysis
AIRTEL For Bharti Airtel, African operations are
expected to see a significant margin
expansion from 25.0% to 30.9% due to
various cost saving initiatives like BPO, IT
and network management outsourcing,
passive
infrastructure sharing, etc. undertaken by
the company
RELIANCE EBITDA margin for Reliance
Communication to improve to 31.9% in
FY14 from 29.5% in FY11 on account of
reduced network rollout costs.
IDEA For Idea Cellular, EBITDA margins are
expected to improve to 24.1% in
FY14 from 27.7% in FY11, primarily on the
back of higher network
utilization.
Financials Past, Present, Future
Competitors Analysis
Global Presence and Marketing Network
Existing telecom companies are coming up with continuous growth strategy
due to high competition.
AIRTEL Mobile and fixed wireless services (GSM) 23 telecom circles
RCOM Reliance Communications has IP-enabled connectivity infrastructure
comprising over 150,000 kilometers of fiber optic cable systems in
India, the US, Europe, Middle East, and the Asia Pacific region
IDEA Has a customer base of over 17 million, IDEA Cellular has operations
in Delhi, Maharashtra,Goa, Gujarat, Andhra Pradesh, Madhya
Pradesh, Chattisgarh, Uttaranchal, Haryana, UP West,
Himachal Pradesh and Kerala.
Competitors Analysis
Future Prospects
AIRTEL Airtel plans to set up 3000 more towers to enhance their
rural coverage and will now focus on rural and
semi-urban areas
RCOM Peak investment phase is over. RCOM continues to be free cash
flow positive and this trend to continue in succeeding years.
RCOM not only reliant on wireless business and also vying the
massive opportunity with DTH and expansion of Enterprise/IDC
IDEA Idea also plans to enter rural and neglected circles as a strategy
to gain subscribers. It also plans for smaller base transmission
stations that will mean lesser infrastructure requirements and
expenses and independent tower operation. Along with its plan
to go for a national long distance license, it will also look at
international long distance in the near future.
Competitors Analysis
Overall Analysis
Telecom sector is one of the fastest growing sectors. This is due to strong
competition that has brought down tariffs and simplification of policy
environment that has promoted healthy competition amongst various players
The government has eased the rules regarding inter circle and intra circle
mergers. This has led to a slew of mergers and acquisitions in the recent past
As the sector is moving closer to maturity, further consolidation is a reality and
this will lead to the survival of more profitable players in this segment
Infrastructure equipment cost is down to a fraction of what prevailed just a
few years ago operators can plan better expansion plan now
Increased viability for the operators to expand to semi-urban and rural
markets. Hence, competition in this market would increase.

Buyer Power High
Buyers Price Sensitivity
(High)
Cost of product relative to total cost
(High)
Product differentiation (High)
Competition between buyers (?)
Relative Bargaining Power
(High)
Size and concentration of buyers relative
to products (high)
Buyers switching cost (low)
Buyers information (High)
Buyers ability to backward integrate (low)
Buyers in Telecom industry generally land in two categories: Individual and Enterprise Customers
like IT companies, Banks etc. There are ample number of telecom providers in the market with
big product variance and cheaper prices which gives buyer many options to select operators
and thus have a large bargaining leverage.
Buyer Power Analysis
Cost of product relative to total cost
Telecom products e.g. Voice calls, 3g etc cost 100% of the total cost of service
and buyers are more sensible to pricing.

Product differentiation
Airtel, Relience,Idea and all other companies have similar prices for similar
products and less likely for any one to maintain product differentiation and
hence buyers have the option to switch over.











[Ref: http://im.tech2.in.com/gallery/2012/may/3gplans_311641209465.jpg]
MRP(Rs.) DATA USAGE VALIDITY MRP(Rs.) DATA USAGE VALIDITY MRP(Rs.) DATA USAGE VALIDITY
250 1 GB 30 Days 255 1 GB 30 Days 250 1 GB 30 Days
450 2 GB 30 Days 449 2 GB 30 Days 450 2 GB 30 Days
1 Rs./min 300-plan (std) 30 days 1 Rs./min (std) 330-plan 30 days 1 Rs./min (std) 330-plan 30days
Airtel
-----------
Prepaid
Relience
-----------
Prepaid
Idea
-----------
Prepaid
Buyer Power Analysis
Competition between buyer
The individual buyers dont have any competition among themselves but
enterprise customers like IT or banks do have. Enterprise customers generate
major part of the revenues for any telecom companies like Relience, Airtel or
Idea which means higher buyer power. But this is not significant for the
newbie or the one who deals with individual customers

Size and concentration of buyers relative to products
960.9 Million of individual telecom subscribers as on May, 2012. Big size and
low concentration of consumption per individual gives lower leverage to buyer
power.
Enterprise customers Big size and big concentration of consumption accrues
high buyer power
Together we can say its moderate buyer power in terms of size and
concentration.
Buyer Power Analysis
Buyers switching cost
Low switching cost. Low new connection cost. With MNP, switching has
become more easier. TRAI expected that the subscriber has to pay not more
than Rs. 200. Some of the operators have estimated the charges can be as low
as Rs. 20.
Mobile Number Portability requests increased from 50.16 million subscribers
at the end of May 2012 to 54.33 million at the end of June 2012. 4.16 million
requests for the month of June itself
Meaning Low switching cost and high buyer power.
Buyers information
Buyers information regarding the availability of other options has become high
Increased social networking, high advertisements through TV, hoardings,
banners and word of mouth, buyers are well informed about the substitute
products with better offerings urban as well as rural areas.
Means high buyer power
Buyer Power Analysis
Buyers ability to backward integrate
Not much intermediaries between the producer and the consumers. High
Investment required for backward integration.
Less likely to have backward integration and hence low buyer power

Suppliers Power - Low
Price Sensitivity
(Low)
Cost of product relative to total cost (Low)
Product differentiation (Low)
Competition between suppliers(High)
Bargaining Power
(Low)
Size and concentration of suppliers
relative to products (Low)
Buyers switching cost (Low)
Buyers information (High)
Suppliers ability to forward integrate
(Low)
Suppliers Power Analysis
Suppliers for the Telecom Operators

The suppliers bargaining power has increased influence on the profitability of
the company. Increase in the bargaining power of the supplier will lead to a
decrease in profits or increase in the price of the end product(Buyer).

There is a price war happening between the different mobile operators, so
even the suppliers are chosen carefully so that they do not drag down the
profitability of the company .So the suppliers have less bargaining power in
this industry.

1. Mobile Tower Companies
2. SIM cards
3. Mobile phone handsets
Suppliers Power Analysis
Mobile Tower companies in India

There are two types of tower companies in India
1. Telecos owned tower companies
2. Independently telecom tower companies (ITTC)
Telecos
Owned,
72%
ITTC, 28%
Telecos Owned
ITTC
Indus Towers Limited (ITL)
Bharat Sanchar Nigam Limited
Reliance Infratel Limited (RITL)
Viom Networks Limited (Viom)
Bharti Infratel Limited (BIL)
GTL Infrastructure Limited (GTL)
American Tower Company
Tower Vision India Limited (TVIL)
India Telecom Infra Limited (ITIL)
Aster Infrastructure Limited
Others
32.20%
15.20%
15.20%
11.20%
9.70%
9.50%
2.30%
0.90%
0.30%
0.30%
3.20%
Share
Share
Suppliers Power Analysis
List of Mobile Operator and their Tower Services.









Less Bargaining power because of more number of suppliers
Little or no forward Integration
Operator Tower Service
Bharti BIL/ITL
Reliance RITL
Vodafone ITL
BSNL MTNL, BSNL and Others
Idea ITL
Tata Viom
Suppliers Power Analysis
Sim Card Manufacturers

Sim card for the mobile operators are mostly produced in India and some are
imported.
The mobile operators doesnt always procure the sim card from a single
supplier to avoid any delays.
The Bargaining power of suppliers is less
There is little or no threat of forward integration .
Suppliers Power Analysis
Mobile Phone handsets
Two types of mobile phones are genereally used. (CDMA & GSM).
The leading CDMA phone manufacturers are Samsung, Blackberry, ZTE,
Motorola , Spice e.t.c
Top 4 leading Mobile phone manufacturer(GSM & CDMA) in India (2011-12)









Bargaining power of suppliers are less.
Little or no threat of Forward integration.
Company Share
Nokia 39%
Samsung 17.2%
Micromax 6.9%
Black Berry 5.9%
Threat of Substitutes - Moderate

Buyer Propensity To Substitute
Relative Prices
Performance Of Substitute



Threat of Substitutes
Buyer Propensity to Substitute
Internet subscriber base increasing in India by 18.06% , compared to 10.60%
for GSM/CDMA services.
Representations from the industry and from within the DoT to open up Net
telephony.
If allowed, this will open up Indias domestic voice market to all operators
which have an unified access services license such as Reliance Infotel and
Aircel to offer voice services along with data to its consumers.
Dot also contemplating allowing operators without a unified access license,
which includes broadband and Internet companies such as Google and Skype
to offer telephony services for international calling and PC-to-PC domestic
calls.



Threat of Substitutes
Relative Prices
Internet Telephony eating into the revenue of GSM/CDMA telephony.
Flat/ fixed rate revenues from internet services - cannibalization of revenues
from GSM/CDMA services.

Performance of Substitute
Voice quality is an issue with internet telephony.
Internet voice services also currently limited due to regulatory road blocks.

Threat Of Entry - Low
Threat of entry
Access to optical fibre network
Declining ARPU
Government and legal barriers
Retaliation by established producers

Threat Of Entry
Capital Requirements
The cost of active equipment is estimated to be 40 percent of the telecom
operator's total capex, while the balance is accounted for by passive
infrastructure.
Bharti has invested close to Rs. 230 billion to create the cellular infrastructure
with 45,000 towers across the country. Typically, a ground based tower costs
Rs. 25-30 lakh. A roof-based tower can be built for Rs.13-14 lakh.
Cost of maintaining one tower (active + passive) is estimated at Rs. 60,000-
65,000 per month.
If tower is rented then monthly rent of Rs. 40,000-45,000 for active network.
The monthly outflow of a TSP would be close to Rs. 80,000-85,000 per tower
per month.
However, the recent announcement made by BSNL about leasing its towers
will help both the older and newer players to penetrate into new markets.
This factor makes the telecom industry moderately attractive for the new
players and investors

Threat Of Entry
Declining ARPU
The market is maturing and new classes of consumers are mostly rural and
their ARPU is well below $5 (probably $3-3.5). So, managing bottom-lines at
such low levels of revenue per user will prove to be a challenge for new
entrant

Access To Optical Fibre Network

The largest optical fibre has been built by the incumbent operator BSNL who is
also the long distance operator.
The private sector players such as Bharti and Reliance have also constructed
optical fibre cable network connecting mainly cities and towns but their
presence is very limited in the rural areas and difficult terrains.
It is fairly difficult and cost- ineffective for new entrants to lay down optical
fibre connecting remote places as well.

Threat Of Entry
Retaliation By Established Players
Also known as Incumbent Wrath signifies the leverage the players in the
market commands. The incumbents grow because of an established network
presence, a brand that consumers are aware of and sheer economies of scale.
Mobile termination charge which one operator pays to the other when the
customer of the former uses the roaming charges of the latter. This is 30 paise
a minute charge as of today. This is charged to the consumer as the cost of
roaming. With an all India footprint (or 80% coverage), the incumbents
effectively do not have to pay termination charges.
The incumbents have either been pocketing the termination charges or
passing them to consumers no roaming charge kind of schemes. This factor
makes the industry unattractive for the new entrants and investors.
The existing Telecom players might begin to bundle broadband, voice,
wireless, video and other emerging technologies together, as well as a variety
of value added content, in an effort to remain competitive, offer seamless
services and attract more customers, at a cheaper price (incumbent wrath)


Threat Of Entry
Government And Legal Barriers


Private operators will have to enter into an arrangement with fixed-service
providers within a circle for traffic between long-distance and short-distance
charging centres.
Seven years time frame set for rollout of network, spread over four phases.
Any shortfall in network coverage would result in encashment and forfeiture
of bank guarantee of that phase.
Private operators to pay one-time entry fee of Rs.25 million plus a Financial
Bank Guarantee (FBG) of Rs.200 million. The revenue sharing agreement
would be to the extent of 6%.
Private operators allowed to set up landing facilities that access submarine
cables and use excess bandwidth available.
No industrial license required for setting up manufacturing units for telecom
equipment.
100% Foreign Direct Investment (FDI) is allowed through automatic route for
manufacturing of telecom equipments.
Moderate threat entry based on Government Policies.

Final Verdict -


LOW HIGH
INDUSTRY
RIVALRY
BUYER POWER
THREAT OF
SUBSTITUTES
SUPPLIER
POWER
THREAT OF
ENTRY
THREAT OF
SUBSTITUTE